Strategy for Tourism
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Part 3, Unit 7
Strategic
Options
Reading
Book
Ch
Tribe, J, (2010) Strategy for Tourism, Goodfellow
Publishers, Oxford.
7
Capon, C. (2008) Understanding Strategic
Management, Prentice Hall: Hemel Hempstead.
7
Tribe, J. (2005) The Economics of Recreation, Leisure
and Tourism, Butterworth Heinemann, Oxford.
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Johnson, G., Scholes, K., and Whittington, R. (2008)
Exploring Corporate Strategy, Prentice Hall: Hemel
Hempstead.
6
Part 3: Strategic Choice
 The next stage of strategy for tourism is strategic choice and by
the end of part 3 it should be possible to propose and justify a
particular strategy for a tourism entity. Strategic choice follows
logically from the previous two stages. Strategic analysis resulted
in a summary of the opportunities and threats evident in the
tourism organisation's external environment and of its internal
strengths and weaknesses and it is in the light of this analysis that
strategy can be formulated, guided by the organisation's mission.
A framework for strategic choice is developed to assist tourism
entities in the development of an appropriate strategy.
 Chapter 7 introduces the main types of strategy, using Porter's
(1998) generic strategies as a starting point.
 Chapter 8 considers the directions methods by which an
organisation can pursue its strategy.
 Chapter 9 offers a template that can be used to evaluate
competing strategies so that an appropriate strategy can be
chosen.
Learning Outcomes
 After studying this chapter and related materials you
should be able to understand:
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Porter's generic strategies
Critiques of Porter
Price-based strategies
Differentiation-based strategies
Hybrid Strategies
Focus strategies
Elasticity and margins
Sustaining competitive advantage
Game theory
 and critically evaluate, explain and apply the above
concepts.
Case Study 7: Accor
Hospitality Worldwide
 Accor Hospitality is a global player with more than 40
years of expertise in its two core businesses of
hotels and services. Accor operates in 100 countries
with more than 150,000 employees and its brands
represent around 4,000 hotels and provide 500,000
rooms. Accor occupies a unique position as the
world’s only hotel operator that covers all the main
market segments. The five segments and the
associated hotel brands are:
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Luxury: Sofitel
Upscale: Pullman, MGallery
Midscale: Novotel, Mercure, Suitehotel, Adagio
Economy: Ibis, All seasons
Budget: Etap, Hotel, Formule 1, hotelF1 and Motel 6
Porter's Generic Strategies
 A generic strategy is a strategy of a particular type or
form designed to promote a lasting competitive
advantage for an organisation.
 Porter (1980) identified three generic strategies that
organisations could use to achieve competitive
advantage. He argued that it was important for
organisations to be clear about which strategy was
being followed and that lack of a clear strategy could
result in muddle and confusion. Porter's generic
strategies are
 cost leadership
 differentiation, and,
 focus
Cost leadership
 This strategy involves
an organisation
becoming the lowest
cost provider in an
industry.
 Porter's logic for this
strategy is that if a firm
can charge industryaverage prices, but
sustains below industryaverage costs it will be
an above average
performer.
Differentiation
 A differentiation strategy is where an organisation
seeks product uniqueness. It will attempt to establish
real (by product design) or perceived (by advertising)
differences between its products and those of its
competitors so that a premium price can be charged
without loss of customers.
 Porter's logic for this strategy is that an organisation
will be an above industry-average performer if the
price premium exceeds the extra costs of providing
differentiation.
Focus
A focus strategy occurs where strategy is
tailored towards a particular market segment
rather than to the whole market and may take
the form of cost focus or differentiation focus.
Problems with Porter 1
 Poon (1993; 239) concludes that "Porter's generic
strategies have little value in today's tourism
industry." Poon identifies four principles for an
effective tourism strategy:
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be a leader in quality
develop radical innovations
put customers first
strengthen the firm's strategic position within the value
chain
 However these principles can be accommodated in
an adapted version of Porter, and price remains an
important part of strategy which Poon ignores.
Problems with Porter 2
Cost leadership is a problematic concept for several
reasons.
 First, many of the routes to lower costs are easily followed
by competitors and therefore leadership may be elusive. It
is perhaps only where a firm can achieve economies of
scale by market leadership that costs may be reduced
without compromising the quality of output.
 Second, where cost leadership is achieved by strippeddown products, consumers are unlikely to pay industryaverage price. Price may well follow costs down thus
reducing any extra margins.
 Third there is a tendency for Porter to use the terms cost
and price interchangeably. But they are very different terms
- the first measuring input costs (paid by firms) and the
second measuring market prices (paid by consumers).
Problems with Porter 3
 Differentiation may be misinterpreted by managers
as being merely a matter of improved technique of
production. What is more important in terms of
selling a product or service is the notion of consumer
perception - does a particular product offer improved
quality or value added over the competition in the
eyes of the consumer?
 Porter's typology also polarises costs leadership and
differentiation. There is evidence that many
organisations seek to operate in a hybrid region
which encompasses both low costs whilst attempting
to market a distinctive product.
Porter Adapted
 Bowman (Bowman & Faulkner, 1995) and Johnson
et al. (2008) et al. have sought to rework Porter's
typology of generic strategies to take into account
some of the issues raised above. have sought to
rework Porter's typology of generic strategies to take
into account some of the issues raised above.
 The typology is adapted to reflect the consumer view
of things.
 Consumers are more sensitive to prices than costs
 Consumers consider perceived quality or value added
rather than differentiation
Price / Quality Matrix
Price-based strategies
 Price-based strategy is
similar to cost leadership,
but emphasises the fact that
low costs are passed on to
the customer in the form of
lower prices. Products are
thus likely to be
standardised, and
unnecessary but costly
extras will have been
stripped away.
 Value chain analysis can be
a useful tool for highlighting
extras which can be
removed (eg. Ryanair)
Price based strategies
 McDonald's restaurants: Its use of standardized products and
processes, self service, self clearing up and huge economies
of scale are key factors enabling low prices.
 Hotel Première Classe (France): Hotels are located where land
prices are cheap but demand strong (e.g. industrial estates
near motorway junctions). Fittings are standardised and with
no frills. Use of automation reduces labour costs.
 Cheap Package Holidays: These cut costs all along the value
chain. Internet sales reduce distribution costs. The use of
charter flights with high load factors, night flights and
secondary airports, together with coach transfers reduce
transport costs. High density, no frills hotels in mass tourism
destinations and bulk buying power reduce accommodation
costs. Vertical integration along the supply chain reduces
“middleman” costs.
Differentiation-based
strategies
This is similar to Porter's differentiation
strategy, but with an emphasis on providing
extra qualities which are valued by the
consumer. This value added may be provided
by:
 design
 exploitation of the value chain
 advertising
Differentiation based
strategies
 7* Hotels e.g. the Burj Al Arab in Dubai, United Arab Emirates
which offers guests a chauffeur driven Rolls Royce, discreet insuite check in, a private reception desk on every floor and a
private butler service. It is located in the exclusive Jumeirah
Beach area of Dubai and its Royal Suite offers private elevator
access, a private cinema and a rotating four-poster canopy
bed.
 St Moritz, Switzerland: This is a destination that has managed
to cultivate an up-market exclusive image and appeal to the
luxury end of the market. Its very expense differentiates it from
other destinations and its popularity amongst celebrities helps
to differentiate it from competing destinations and sustain its
elite and glamorous image.
 The Michelin Star rating of restaurants can provide a distinctive
marker of differentiation. Three Stars is the highest rating
which means “Exceptional cuisine and worth the journey”. In
2010 there were less than one hundred 3* rated restaurants
including El Bulli (Roses, Spain), The Fat Duck (Bray, UK),
Lung King Heen (Hong Kong, China) and L'Osier (Tokyo,
Japan).
Differentiation: Airline Seats
Destination Differentiation
Destination Differentiation
Destination Differentiation
Destination Differentiation
Destination Differentiation
Destination Differentiation
Destination Differentiation
Hybrid strategies
 A hybrid strategy is an attempt to provide quality
products and services at low prices.
 It seems contradictory because adding value adds to
costs which should preclude low prices.
 The key to a successful hybrid strategy is therefore
to reduce average costs.
 The first route to this is achieving of economies of scale.
Economies of scale are therefore open to firms which can
achieve high market share, and a virtuous circle may
become established.
 The second route, important to service providers such as
tourism organisations, is to ensure high load factors.
Hybrid strategies
Route to
Hybrid
Strategies
Hybrid Strategy
Virgin Blue is an example of an airline
following a hybrid strategy. Virgin Blue
operates in Australia and describes how
“Unlike traditional ‘no frills’ low-cost carriers,
Virgin Blue’s approach is to offer consistently
affordable fares, outstanding service and a host of
other options available on a pay for use basis”
(Virgin Blue, 2008)
Virgin Blue
Focused strategies
Price-based and differentiation strategies may
each be focused on a particular market
segment and it is increasingly common for
organisations to seek to serve a number of
different market segments.
Examples in the tourism industry.
 In the hotels sectors IHG operates both
InterContinental and Formule 1 hotels.
 In the airline industry Qantas offers four different
classes of travel – Economy, Premium Economy,
Business Class and First Class.
 At the destination level the island of Mallorca, Spain
offers holidays to both mass budget tourists (e.g.
the resorts of Magaluf and Palma Nova) as well as
to the upscale segment of the market (e.g. Deja).
Zone X
 Zone X (Tribe, 1997) represents a combination of
high prices and low quality and will generally
therefore lead to failure. However there are
exceptions to this.
 First, where an organisation has a monopoly it can operate
in zone x without fear of loosing customers
 Second, where consumers have lack of information about
quality, or competitive prices, zone x strategies may persist.
Tourist areas represent a potential site within which
organisations may operate such strategies since new and
naive tourists are continually arriving. Restaurants, hotels
and taxis may be able to operate zone x strategies under
such conditions.
Elasticity and Margins
 Understanding elasticity of demand can be helpful to
organisations when looking at strategic options.
 Elasticity of demand measures the responsiveness of demand
to a change in price. Its definition is:
 Where demand is sensitive to changes in price demand is said
to be elastic and where a change in price has less of an effect
on demand it is inelastic.
 A price leadership strategy will therefore be appropriate in a
market or market segment where demand is elastic. This is
because for any percentage reduction in price, demand will rise
by a greater percentage.
 Elasticity theory helps us to understand that effective
differentiation strategies will result in demand becoming more
inelastic.
Sustaining Competitive
Advantage
 Becoming the industry leader.
 Protecting invention and innovation through patents.
 Maintaining leadership through innovation and organisational
responsiveness.
 Cross subsidization from elsewhere in an organisation’s
business portfolio where competition is less.
 Exploiting “deep pockets” that is substantial surplus financial
resources.
 Concentrating on a set of organisational capabilities that are
difficult to replicate..
 Collaboration to obtain competitive advantage
 Seeking the benefits of clustering.
 Revolutionizing the business model
Game Theory
Game theory can be used to model behavior
in strategic situations.
The problem is that any move made by one
party in a competitive situation will cause
subsequent moves in others and each of
those moves will cause further moves.
So a strategy which might appear successful
based upon current configurations of
competitor actions may well turn out to have
different consequences once competitor
actions and reactions have taken place.
Review of Key Terms
 Generic strategy: A strategy of a particular type or form
designed to promote a lasting competitive advantage.
 Cost leadership: Becoming the lowest cost provider in an
industry.
 Differentiation: Seeking product or service uniqueness.
 Focus strategy: A strategy tailored towards a particular market
segment.
 Price-based strategy: Reducing costs and prices.
 Hybrid strategy: Providing high quality products and services at
low prices.
 Zone X: A combination of high prices and low quality.
 Elasticity of demand: The responsiveness of demand to a
change in price.
 Game theory: Used to model competitor reactions in situations
of interdependence.
Discussion Questions
1. "Market share is crucial for a hybrid strategy."
Explain, using examples from tourism, what is meant
by this statement.
2. Explain how a hotel brand could achieve price
leadership.
3. Explain how a no frills airline could maintain
competitive advantage.
4. Explain how the concept of elasticity of demand
helps to understand the logic of price and
differentiation strategies.
5. Under what circumstances is it possible for a tourism
organisation to survive by charging high prices for
low quality services?
Case Study: Visit Britain
The following link is to Visit Britain’s 2006 –
2009 Strategy
http://www.culture.gov.uk/NR/rdonlyres/B63AF049-75A6-415F-83BF-1EAA4549C558/0/tourismstrategyfor2012_fullreport.pdf
To what extent do you agree that Visit Britain
exploits and extends Britain’s competitive
advantage as a tourism destination?
Strategy for Tourism
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Part 3, Unit 7
Strategic
Options
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The End